Huawei And The U.S. Channel: Making Inroads Or On The Outs?

It's been 10 months since the U.S. House of Representatives' Permanent Select Committee on Intelligence issued a report labeling Huawei a "national security risk," alleging the company could serve as a back door for spying on U.S. communications and data flowing across carrier and other networks based on its technology.

Since then, the $35 billion Chinese telecommunications company has continued to defend itself -- and the integrity of its products -- against similar allegations from government agencies in Australia and the U.K., as well as from security specialists such as Michael Hayden, former head of the CIA and the National Security Agency.

Despite this steady stream of public-relations setbacks, one thing seems surprisingly clear: Alleged security issues in Huawei's infrastructure business, focused primarily on the telecom carrier market, have not dampened enthusiasm among smaller commercial solution providers working with its enterprise business or its mobile device business.

Huawei also is making inroads with some solution providers seeking alternatives to Cisco Systems and Hewlett-Packard. Huawei's appeal to larger solution providers, however, remains muted.

Gary Fish, founder and CEO of FishNet Security, a Kansas City, Mo.-based solution provider specializing in networking security, said he doesn't partner with Huawei today, but not necessarily because of security concerns.

"I don’t know if the security threat is real or not with Huawei. We use a lot of hardware and software that's not manufactured here in the U.S. Products are innovated all over the world so, to me, it doesn't necessarily make them not secure," Fish said. "For us, it's not a decision of security right now, it's a decision around what our customers are asking for."

GLARE OF THE SECURITY SPOTLIGHT

While larger solution providers may be taking a pass, smaller solution providers' confidence in Huawei represents a rare bright spot for the Shenzhen, China-based company, given the political fire it's been under, particularly in North America, for the past several months. Much of the fire was fueled by the October 2012 report from the House Intelligence Committee that dubbed Huawei and fellow Chinese company ZTE potential national security threats because their products could be used for spying on American citizens.

The report's release followed a nearly yearlong investigation into Huawei performed by the House Permanent Select Committee on Intelligence, and prompted by Huawei's own request. While one of the primary aims of the probe was to define any ties between Huawei and the Chinese government and military, Huawei, according to the report, "consistently denied having any links to the Chinese government and maintains that it is a private, employee-owned company."

The report fell into the lap of the American public through a CBS "60 Minutes" episode, aired Oct. 7, 2012, in which Rep. Mike Rogers, a Michigan Republican and chairman of the Permanent Select Committee on Intelligence, told U.S. business owners that if they are "looking at Huawei, I would find another vendor if you care about your intellectual property, if you care about your consumers' privacy, and you care about the national security of the United States of America."

Former CIA and NAS official Hayden said in a July interview with the Australian Financial Review that he is certain Huawei supplied sensitive intelligence to China in his "professional judgment."

Hayden told the paper that Western intelligence agencies knew about Huawei's alleged clandestine activities and that the company, at a minimum, had "shared with the Chinese state intimate and extensive knowledge of the foreign telecommunications systems it is involved with."

Stewart Baker, a partner at Washington, D.C.-based law firm Steptoe & Johnson and the former assistant secretary for policy at the U.S. Department of Homeland Security, told CRN via email that allowing the Chinese government access to U.S. telecom networks would be a serious threat, given China's record of hacking U.S. institutions.

However, Baker said, the U.S. government has yet to prove allegations of spying. "Huawei does have ties to the Chinese government but it hasn't been proven to enable Chinese espionage," he wrote. "The U.S. position has been to keep Huawei out on a 'better-safe-than-sorry' basis."

Furthermore, Baker wrote, while there have been plenty of security flaws found in Huawei gear, "It's not easy to determine whether such flaws are deliberate or negligent."

Even so, Baker said that U.S. companies need to be careful.

"Companies that are worried about becoming targets of Chinese espionage should certainly take that risk into account in the hardware they buy," he wrote.

BURNED: ONE VAR'S EXPERIENCE WITH HUAWEI

For one solution provider that did partner with Huawei, the security concerns surrounding the company turned the relationship into a painful experience.

MPAK Technology, a San Diego-based solution provider, two years ago partnered with Huawei-Symantec, a joint venture of the two vendors before Huawei purchased Symantec's share, to develop a high-performance storage infrastructure for the University of Tennessee's National Center for Computational Engineering, or SimCenter. That installation became the target of a Congressional investigation given that SimCenter does research for various U.S. government agencies including the Energy and the Defense departments.

For Mike Kornblum, president and chief storage architect of MPAK, a former Marine and a government contractor for more than 20 years, the result was a barrage of negative public scrutiny of MPAK's involvement with Huawei.

While for MPAK the relationship with Huawei-Symantec was a standard solution provider arrangement, several U.S. senators in a 2011 letter to the Secretaries of Defense and Energy wrote, in reference to MPAK and networking vendor Force10, "It appears Huawei is seeking new strategies to mask its penetration of our information systems that demand careful and thorough review."

"In today's marketplace and as an owner of a small system integrator, it is very hard to walk away from Chinese-made technology because of the disruptive pricing that goes along with it," Kornblum wrote in an email to CRN. "I had been bashed in the blogs by many people inside of and outside of our industry. I clearly understand the real concerns about the Chinese and will never align myself with a Huawei again."

Kornblum admitted he was naive about the kind of issues brought up by the congressional investigation.

"I had been exposed to Huawei wholly based on our relationship with Symantec that exists because of the Veritas acquisition," he wrote.

WHY SOME SMALLER SOLUTION PROVIDERS SAY THEY ARE ON BOARD

"[Huawei is] what we call a true partner," said Mario Guerendo, president and CEO of Libanga Computer Systems, a Zionsville, Ind.-based solution provider. "They really, really helped with our growth and market strategy, making sure that we didn't just jump on Huawei products and start selling them. They've been helping us focus and strategize on our market approach."

Guerendo said the U.S. government's looming security concerns with Huawei have had little impact on his company's commercial business. He also said, however, that he hasn't closed any Huawei deals within his state or local government accounts since signing on as a partner in January.

"In our market segment, it's [come up] very little," he said. "It has come up once or twice, but for every government report that's issued expressing concerns about [Huawei's] products or business practice, there is another report that goes against that information. It loses credibility."

Glenn Conley, president and CEO of Metropark Communications, a St. Louis-based solution provider, said Huawei sales today make up about 25 percent of his overall business. Conley said he is seeing a decline in his HP business, and a jump in Huawei sales, even with the recent security concerns.

"[Huawei] comes in at a price point that's a lot more accommodating than a lot of the other traditional IT infrastructure companies are today," he said. "Them coming in here is causing everybody to wake up a little bit."

Joe Asady, CEO of Netfast Communications, a New York-based IT solution provider and Huawei partner, said Huawei's potential growth in the U.S. rests on it being able to allay the government and the industry's security concerns.

These issues can be overcome, Asady said. He cited IBM's 2004 sale of its PC business to China-based Lenovo and the initial resistance to that sale.

"Now look at IBM's possible sale of its server business to Lenovo," he said. "And Lenovo ThinkPads are in use everywhere in the U.S. There are third-party companies in the U.S. who can certify that Huawei is not a security threat."

SOLUTION PROVIDERS ON HUAWEI AS ALTERNATIVE TO CISCO, HP

Some solution providers say that partnering with Huawei is often driven by a demand for an alternative to Cisco and, to a lesser extent, HP.

It is a threat Cisco seems to have brushed aside.

Despite once labeling Huawei "a very tough competitor over the long term," Cisco CEO John Chambers dismissed the Huawei threat at Cisco's Global Partner Summit in Boston this year.

"Two years ago at this conference, we were all a bit worried, and especially the press, about HP beating us, and Huawei beating us, and Avaya [beating us]," Chambers told partners. "We've left them behind in market share, as well."

Even so, for some solution providers looking for an alternative to Cisco or HP, Huawei has become their go-to vendor.

Libanga Computer Systems' Guerendo said he was interested in Huawei largely as an alternative to Cisco, another partner of Libanga's that he said has become a challenge to work with in recent years.

"We were looking for an alternative solution to Cisco, not only from a product standpoint, but from a channel support standpoint," Guerendo told CRN. "[Cisco's] channel support for smaller VARs is almost non-existent. Unless you are a larger VAR, you have no support. We were a Cisco VAR for five years and never once met our channel manager."

But with Huawei, Guerendo continued, Libanga holds regular conference calls and "whiteboard sessions," where they discuss joint marketing and go-to-market strategies. Huawei also is helping the company build a Huawei demo center at its Indiana headquarters.

Guerendo, who is still a Cisco partner, said he sells across most of Huawei's enterprise line, including the company's routers, switches, telepresence systems, storage and wireless LAN equipment. Libanga sells largely into the SMB space, where Guerendo said customers are also looking to Huawei as a popular -- and less expensive -- alternative to Cisco.

Another Huawei partner, who asked to remain anonymous to protect relationships with other vendors, said his company also signed on with Huawei after feeling overlooked by Cisco.

"Huawei supports us, hand-in-hand, and we like working with partners that really support us," the solution provider told CRN. "We were one of the first Cisco partners to the table, and at that time we did quite well by them and they did quite well by us. But as they grew in size -- and I guess that's just the nature of the game -- we slowly fell off their radar, and now margins are cut. So not only are we not getting the support we need, but we aren't making the money that we were."

The partner, who referred to the Huawei channel team as "hard-working and diligent," said the security concerns have created a bit of an "uphill battle" with end customers, but that his Huawei business is still up compared with last year.

Cisco declined to comment when reached by CRN, citing a policy of not commenting on stories about other vendors.

Metropark's Conley, whose company is also a major HP Networking partner, agreed that Huawei seems more invested in his business than some of his other vendor partners.

"I have much greater visibility with Huawei than I do with HP. That means I am able to get to the right people that make decisions [in Huawei] much easier than I can with HP," Conley told CRN. "I guess I just feel like there is more of concerted effort [from Huawei] to make the channel partner more successful in selling Huawei than [there is] from the HP guys making me successful selling HP."

Mike Banic, vice president of marketing for HP Networking, responded to CRN in an email, saying, "HP has a strong channel focus with over 90 percent of HP Networking's business going through the channel and growing participation in our PartnerOne program. Our Networking strategy is simplification through product innovations, disruptive economics and an integrated go-to-market engine to meet the changing needs of today's customer.

"Our partners have increased the value proposition they offer customers with the simplification delivered by the HP FlexNetwork architecture and our industry-leading SDN innovations -- enabling them to provide choice and flexibility, while growing their bottom line," said Banic.

HUAWEI RESPONDS TO THE CHALLENGES

William Plummer, vice president of external affairs for Huawei Technologies and the most public face of the company, told CRN that Huawei has a number of tier-three and tier-four customers in the U.S., but has been challenged in tiers one and two for political reasons.

However, Plummer said, "political protectionist actions" against Huawei in the past three years have been "weak."

"The U.S. Congress [Permanent Select Committee on Intelligence] report against Huawei was 52 pages of vapor," he said.

Those in the U.S. government looking for challenges realize that the telecom industry is interested in transactions with Huawei, Plummer said.

"Huawei has 28 R&D centers, including seven in the U.S.," he said. "We do our coding on a worldwide basis. And security threats are universal."

Huawei is even picking up allies in the U.S. government and business community, Plummer said.

In March, when Congress agreed to fund government operations through October, there was one paragraph at the end of the funding bill that forbade investment in equipment from companies invested in by foreign governments, he said.

"A response by the BSA, the SIA, the SIIA, the U.S. Chamber of Commerce, and many others said that everyone in the industry would be caught up in the same net, and that this was terribly bad policy in that it invites reciprocity by other governments," he said. "One day after that letter, the president came out in agreement. We're heading in a direction where rational thought is breaking out all over. We're heading in a direction where Huawei can meet the needs of all customers."

One of Huawei's biggest problems has been its relatively poor communication over the years, a problem Plummer ascribed to the company's youth and its origin in a country where communication has not traditionally been as open as it is in the West.

"Our focus has been less on how we can communicate better," he said. "But, frankly, if we had been more open 10 years ago, a lot of the issues we are addressing today we wouldn't have today. We acknowledge that. We need to be better communicators. If we had been less focused on innovation 10 years ago and more focused on our brand, we wouldn't have these issues today. But then again, if we did that, we might not have the innovation we have today."

HUAWEI SAYS CHANNEL, ENTERPRISE FOOTPRINT 'IS GROWING'

Huawei says it is making steady progress within both the U.S. channel and enterprise market. That progress might be slow, the company admits, but it's there.

"Our enterprise business in the U.S. is growing," said Jane Li, chief operating officer, Huawei Enterprise USA. Li declined to give specific numbers related to that growth, or to disclose how much of Huawei's overall revenue stems from the enterprise segment.

"There are roadblocks that we are all aware of," Li continued. "So what we are doing ... is being more focused on verticals that are a much better fit from Huawei's point of view and the vertical's point of view. Education is a great example."

In terms of U.S. channel sales, specifically, Li said Huawei saw a year-over-year increase, percentagewise, that is in the "triple digits."

But for Huawei, the U.S. market, in general, remains a tough nut to crack.

The Americas as a whole is the smallest source of revenue for Huawei out the four geographies it recognizes, accounting for only 14.5 percent of Huawei's total 2012 worldwide revenue. According to the company, Huawei's worldwide revenue grew 8 percent in 2012 compared with 2011, with its Americas revenue growing just 4.3 percent during that time.

But while Huawei grapples with security concerns related to its infrastructure business, the company is using its enterprise segment to gain a foothold in the country.

According to Rob Claus, vice president of U.S. channel sales for Huawei Enterprise, Huawei has signed "between 75 and 100 partners" since the formal launch of its U.S. channel program in 2011. Claus said Huawei's goal is to sell 100 percent indirect in the U.S. -- a goal the company first revealed with the launch of the program -- but he declined to provide the exact percentage of indirect sales at Huawei today.

"Our intention is to be 100 percent [through the channel]," Claus told CRN. "Wherever possible, we will always include a partner in the business."

Claus said many of the solution providers signing on with Huawei already partner with other major networking players such as Cisco or HP. At the Huawei Partner Summit in May, Huawei unveiled a tool for partners called Product Mirror, which lets solution providers map Cisco equipment to an equivalent Huawei product and automatically generate a price list for that product.

"Partners that are seeking us out are looking for profitability, they are looking for a larger product line, but a lot of them are also looking at Huawei and saying, 'You know what, Huawei is just too big to ignore, and the opportunity that Huawei is going to be in the future is something I want to get in on early,'" Claus said. "They're looking for who's new out there. The leading vendors of today might not be the leading vendors of tomorrow."

As Huawei's U.S. partner base has grown, its channel program has evolved. When launched in 2011, Huawei's channel program focused exclusively on Huawei's Ethernet switches, routers and video telepresence products, and details related to things such as partner levels, rewards and discounts were vague.

Now, Claus said, that program has expanded to include Huawei's security, storage and wireless LAN products, and it now maintains more formalized partnership levels, including Authorized, Silver and Gold. He also said Huawei has made a number of enhancements related to items such as deal registration and now offers what he called "very aggressive" MDFs.

In addition, Huawei has bulked up its online training and certification programs for solution providers both in the technical and sales fields, and is running a series of partner training webinars.

"We very much want to enable our partners and make sure they understand our products," Claus said.

Huawei has also advanced the program to a two-tier model, through which it works with U.S. distributors including Synnex. CRN reached out to Synnex for comment on the program, but did not receive a response by press time.

When asked if the current political climate in the U.S. is impacting Huawei's channel growth or strategy, Huawei's Li responded, "Of course it does."

"It is unfortunate," Li continued. "I've been in the high-tech arena for over 20 years, and in Silicon Valley for over 10 years, and I'm a free enterprise person. So it's saddened me to see so many politics that have been impacting our business."

Still, Li said, she's optimistic.

"On the other hand, we have also seen in the U.S. that ultimately the enterprise needs to, and will, make their own decisions," Li told CRN. "Things will become easier and easier, as people get to know us and get to like to do business with us. From that point of view, we are patient."

Doron Kempel says selling hyper-convergence can be challenging for solution providers, but success will come from taking business from competitors that are unprepared or hesitant to embrace the technology.